Texas Instruments And Mellanox Will Supercharge Your Portfolio

A photo shows the process of manufacturing of electronic chips in the X-Fab semiconductors factory, in Ormoy, near Paris, on November 10, 2016. / AFP / THOMAS SAMSON (Photo credit should read THOMAS SAMSON/AFP/Getty Images)

Every sector, in varying capacities, relies on the products and services of semiconductor and networking manufacturers. Two giants in the field include Mellanox Technologies (MLNX-US) and Texas Instruments (TXN-US). Mellanox is a top network infrastructure provider that plays an important role in accelerating the speed and bandwidth of the Internet. Texas Instruments is well known for calculators but has evolved into a top analog chip manufacturer that is a key player in the burgeoning internet of things (IoT). CressCap’s buy signals on MLNX and TXN, as well as each company’s essential status in the modern global economy, highlight these two stocks as potentially safer buys in the current market.

Currently, CressCap lists Mellanox and Texas Instruments among our top U.S. equities. The foundation of our process is to identify companies that perform best and worst on the collective basis of value, growth, EPS revisions, profitability and LT momentum. The CressCap systematic trading model gathers data daily on 6,500 companies globally and assigns academic grades (A - F) for each financial metric. These grades are scored relative to the stocks region/sector. Mellanox and Texas Instrument’s commanding presence in the Internet and semiconductor manufacturing industries have propelled these companies to the top of CressCap’s computer driven quantitative rankings.

Mellanox Technologies manufactures and supplies end-to-end semiconductor-based switches and adapters for high-performance networking solutions and is ranked by CressCap as one of the top U.S. equities. Just four weeks ago MLNX was ranked 36th out of 401 U.S. information technology stocks. Today, Mellanox is ranked 16th in the sector. The higher rank is undoubtedly connected to CressCap’s improving grade for the company’s growth metric as well as the steady increase in the stock’s price.

In Mellanox’s annual report, the company states, “we work with leading vendors across related industries including processor and accelerator vendors, such as; AMD (AMD-US), Intel (INTC-US) and NVIDIA (NVDA-US). Operating systems vendors, such as Microsoft (MSFT-US) and Red Hat (RHT-US), and software application vendors such as Oracle (ORCL-US), IBM (IBM-US) and VMWare (VMW-US).” In developing such partnerships with leading organizations of our economy, MLNX has helped to grow its market share. In conjunction with its premier partnerships, Mellanox reported a record high revenue in FY 2017 of $863.9 million.

CressCap’s grade for MLNX’s est. EPS growth is A+, at a rate of 178% vs. the sector avg. 51.4%. In 2017, EPS grew 76.9% and is expected to grow 13.8% next year. The company received a B- for its two year historic sales growth reported at 41.3% against the sector’s 23.3%. MLNX’s debt to equity percentage, graded B, was 6.9% while the sector avg. was 34.5%.

CressCap also grades Mellanox’s PEG (price to earnings over earnings growth) ratio B, at 1.3x vs. the sector avg. 1.6x. The PEG ratio is a valuation metric that measures the relative tradeoff of a company’s stock price, its EPS, and its projected earnings growth and is useful as it provides a clearer representation of a company’s value than that of the P/E ratio. Additionally, in 1Q18, the company’s revenue grew by 33.04%. Net income increased 409.07% in the same time frame.

The stock is working towards its prior high of $120 on positive volume and confirming momentum. We expect over the next year that MLNX will try its highs based on solid fundamentals and accelerating growth.

Texas Instruments Calculated Higher Earnings

Texas Instruments (TXN-US) Overall Grade: A+

Texas Instruments is a major designer, manufacturer and provider of integrated circuit semiconductors and calculators. Over the last four weeks TXN’s CressCap sector rank has dramatically improved moving to 19 from 88th out of 401 I.T. stocks. This rise is primarily due to the improvement in all of the company’s five key metrics.

TXN is the largest provider of analog chips for the IoT and many customer-facing hardware, along with calculators and instruments that bear the eponymous name Texas Instruments. Analog chips (80% of revs) translate myriad inputs from sensors to screens into digital information that applications and hardware can utilize. TXN’s embedded processor business is a global leader in non-customer facing apps. Both segments have a bright future in automotive applications. In the company’s annual report, TXN’s states “Our strategic focus, and where we invest the majority of our resources, is on Analog and Embedded Processing, with a particular emphasis on designing and selling those products into the industrial and automotive markets, which we believe represent the best growth opportunities.”

TXN looks attractive on many profitability metrics. CressCap grades Texas Instrument’s CF/ROI an A, at a reported rate at of 39.2% vs. the sector avg. 14.95%. TXN also generates strong cash flows. CressCap grades TXN’sFCF to sales is graded A+ at 31.2%, up 25.4% from 5 years ago, vs. the sector 9.8% and FCF to EPS gets a B grade at 1.3x against the sector average 1.0x.

The company has been aggressively buying back its stock for $2.1 billion and paying a sizable dividend of $2 billion or a yield of 2.4%. EPS revisions and profitability grades are A+. 2 year historic EPS growth was given a B at 28.01%, vs. the sector -6.41%. Furthermore, est. EPS growth gets a B at a rate of 72.5% compared to the sector avg. 51.4%. Texas Instrument’s ROI is graded A+, by CressCap, at 26.7% while the sector avg. was 5.83%. CressCap also grades TXI’s operating margin A+ as the company reported the margin at 46.4% while the sector’s average rate was 14.5%.

TXN’s growth grade is a B-, with EPS growth expected to be 14.8% this year and 13.2% next. The company’s overall value grade is a B. EV/EBITDA has a B grade, at 15.2x compared to peers at 14.3x. PEG receives a B, at 1.4x against the sector avg.1.6x. Net margin, graded A+, was 24.4% on $3.7 billion, while the sector’s average was 4.4%. Additionally, 2017 sales were $15 billion, up 11.9% yoy.

Technically, the stock has made a well defined uptrend and hit a new high, with a confirming RSI high on 1/22 on a weekly and daily basis. TXN appears to be well along in the formation of a triangle with bullish divergence on its 2nd test of $96 support, suggesting further upside potential.

I am the Technical Strategist for CressCap Investment Research, a pioneer in the fusion of statistical computing systems and research analytics. I was the first tech analyst at Jefferies & Co, covering enterprise software companies in 1999 and founded a research boutiq...